Capital adequacy determinants of Indian banks listed on the Bombay Stock Exchange

Nabil Senan, Fozi Belhaj, Ebrahim Al-Matari, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi

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    Abstract

    This study examines the influence of corporate-specific factors and external factors on capital adequacy of Indian banks listed on the Bombay Stock Exchange (BSE). This study used a GMM estimation (pooled, fixed, and random) for the period 2009–2018 to study thirty-seven Indian listed commercial banks. Banks’ capital adequacy (CAAD) is used as a dependent variable measured by equity to total assets. While corporate specifics factors include bank size, asset quality, liquidity ratio, deposit ratio, asset management, operating efficiency, return on assets, net interest margin, and non-interest income, external factors are economic activity, exchange rate, and interest rate. The results of this paper found that the deposit ratio, asset management, bank size, and operating efficiency are the main factors influencing banks’ CAAD of Indian listed firms during the period of the study. The outcomes revealed that the deposits ratio, asset management, and bank size have a negative and significant influence on banks’ CAAD, while operating efficiency has a positive and significant impact on CAAD. In terms of external indicators, the results revealed that gross domestic product and interest rate have a negative and significant effect on CAAD of Indian listed banks, except that the exchange rate has a positive and significant influence on CAAD.
    Original languageEnglish
    Pages (from-to)167-179
    Number of pages13
    JournalInvestment Management and Financial Innovations
    Volume19
    Issue number2
    DOIs
    Publication statusPublished - 26 May 2022

    Keywords

    • Capital Adequacy
    • commercial banks
    • external factors
    • firm-specific
    • GMM
    • India

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